Canadian Competition Bureau cracks down on prepaid calling card companies

Date: 3/27/2008 10:33:21 AM

Government crack downs on the prepaid industry are not isolated to the United
States. North of the border, the Government of Canada’s Competition Bureau has
started an initiative to ensure accurate disclosure of information from prepaid
calling card providers.

“We have been involved in the prepaid telephone card industry for the last
couple of years,” Derm Jardine, assistant deputy commissioner of the Competition
Bureau, says. “We’ve received somewhere in the vicinity of 500 complaints since
2002.”

The complaints include card companies providing fewer minutes than advertised,
charging hidden fees (for example, administration fees) and charging higher
perminute rates than advertised. These complaints prompted the Bureau to work
with companies to take action.

“We work with the companies on an ongoing basis to deal with marketplace
issues, and in this case, the real issue was how to properly advertise the value
of these cards for consumers so they weren’t misleading,” Jardine says. “It was
through discussions with Gold Line (a Canadianbased prepaid phone car provider)
that we came up with the Minimum Standard of Disclosure.”

Businesses must conform to the Minimum Standard of Disclosure, three concrete
rules the Bureau adopted to address the problem. The Bureau will monitor prepaid
companies in Canada to ensure they disclose more accurate information. The rules
are:

• Disclose the effective rateperminute and the number of minutes available on
the card.

• Disclose any conditions that might adversely affect the advertised
rateperminute and number of minutes near the main body of the representation –
this information should not be printed in a small font or appear on a background
that obstructs its visibility.

• Discontinue the use of fine print disclaimers that contain information
contradicting the main message – the main body of the representation should not
be misleading when read alone.

“Companies have a number of different cards that satisfy a number of different
niche markets,” Jardine says. “In some cases, there’s no need to provide any
further information than the basic rateperminute and the value of the card
directly. In other cases, that’s not necessarily so.”

Early returns

In most countries, government agencies that interfere with free markets are seen
as negative, especially from the big business point of view. However, if the
early responses are any indicator, there are businesses that see governments’
involvement as a positive influence. Although the Canadian initiative is fairly
new, the initial response from prepaid companies is positive.

“They’re happy that they have a standard they can use in doing the advertising
of their phone cards,” Jardine says. “So, the initial response, which is
probably a little too early to know, is fairly positive right now.”

Some friendly advice

With plenty of Canadian prepaid phone card companies scrambling to meet the
newly adopted standards of the Competition Bureau, here is Jardine’s advice on
how to move forward.

• “The first (piece of advice) is to disclose the effective rateperminute and
available minutes on the card. That’s the general impression companies are using
to attract customers to their products. So, we’re saying, ‘identify on that ad
what is the effective rate—i.e. what are you going to get when you buy that
card.”

• “Then, if there are any conditions [on the card] that could adversely affect
the advertised rateperminute or the number of minutes, you should make those
known very close to the main body of the representation because this is
information that a customer would need to know, and it is useful for them in
making their decisions.”

• “(Lastly), we discourage the use of fine print disclosure. We have had
information news bulletins dating back to 1986 on the use of fine print
disclosure. In essence, it says you should not use fine print disclosure that
basically nullifies that general impression that you’re giving. In fact, in a
lot of these cases, what we’ve seen in the phone card industry with these fine
print disclosures, once you take them into account, there is no way anyone can
ever figure out what the effective rateperminute is on these calling cards. We
have actually challenged the companies to tell us, and they weren’t able to do
it when they took into account all the fine print disclosures.”

What to expect in the future

The Bureau has some clear goals in mind for the future of the prepaid industry.
Their goals can be boiled down to one word: disclosure. This particular goal of
the Bureau does not just apply to prepaid, but to all industries.

“We’re looking for disclosure in general, not just in the prepaid industry,”
Jardine says. “This is just one in particular that we’ve now reached an
agreement with some of their major players. When the consumer goes out and has a
specific need in mind, they should be able to look through the various products
– through the advertising – and determine what card will best suit their needs.
When they buy that card, (they should) be given the actual product that they
paid for.”

For the prepaid industry, not just in Canada but the whole world, it appears
governmentimposed regulation – in some way, shape or form – has been adopted or
is on its way. The scammers and conartists have officially been put on notice.
The companies who have played by the rules the whole time in this freeforall
industry are finally getting some long overdue vindication.